A federal district court has held that displaying a competitor’s trademark in Adwords ad copy constitutes impermissible initial interest confusion, leading to a summary judgment win for the trademark owner. This is one of the first competitor-vs.-competitor search advertising cases where the plaintiff has won the trademark claims. This case also has an interesting and rare discussion about the trademark implications of a retailer’s internal search engine.

Claims Against Aroa

Storus distributes money clips under the trademark “smart money clips.” Storus was able to get a federal registration for the mark, which is interesting because I’d love to see the showing of secondary meaning. Given the registration, Aroa instead tries to knock out “smart” as a laudatory phrase, but the court isn’t convinced. Thus, the court permits Storus to proceed with a pathetic descriptive mark.

Aroa sells competitive money clips. Through Adwords, it purchased the keyword “smart money clip” to display the following ad:

Per Google’s standard formatting, the trademark shows up bold and underlined, which the court says overshadows Aroa’s display of its own trademarks in the ad copy. The court also invokes initial interest confusion (as part of the Ninth Circuit’s inconsistently invoked “Internet trilogy” likelihood of consumer confusion analysis) and notes that “defendants offer no evidence to show a lack of actual initial interest confusion.” Summary judgment for plaintiff.

Claims Against Skymall

Skymall is an online retailer of Aroa products. Storus alleges that Skymall included the term “smart money clip” on Aroa product pages, which meant that if a person searched for “smart money clip” in Skymall’s internal search engine, Aroa’s products would appear in the search results. Storus portrayed this as initial interest confusion, but the court wasn’t persuaded enough to grant summary judgment. Instead, the court observes that “a page offering an Aroa money clip will appear as a search result solely because the consumer searches using the phrase “money clip,” irrespective of whether the consumer adds the word “smart” to the search term and irrespective of whether the page contains the word “smart.”” Isn’t it amazing that a page containing the phrase “smart money clip” would also appear for a search on “money clip“?!

Implications

On the surface, this case looks problematic for the search advertising industry. Any time a search advertising practice is deemed infringing, it should promptly eliminate all similar ads from other advertisers, taking a chunk of revenues out of search engine pockets. Further, when advertisers are liable for trademark infringement, it increases the risk that search engines will be contributorily liable for those infringing ads.

Yet, Aroa’s practices here (displaying a competitor’s trademark in the ad copy) are already restricted by all of the search engine trademark policies. Therefore, this ruling shouldn’t reduce much ad revenue for search engines.

But that raises the obvious question: why didn’t Storus just invoke these search engine policies to shut down Aroa? As Dennis Toeppen might have said, perhaps Storus’ lawyer wanted a new boat, because this trademark lawsuit made absolutely no financial sense for Storus. The court determines that over 11 months Aroa got 1,374 clicks on its ads (from 36,164 ad impressions, yielding a 3.7% clickthrough rate–not bad). If we value each click at $1/click (a generous amount given that Aroa sells its money clip for $30), Storus could have acquired the “diverted” clicks for $1,374–an amount that is surely no more than 5% (and perhaps even less than 1%) of what Storus spent in this lawsuit. Smart business decision there, guys.

Doctrinally, this case is a textbook example of how the initial interest confusion doctrine is completely bogus. As I’ve said before, a defendant cannot mount an adequate defense against the initial interest confusion doctrine because the doctrine lacks any rigorous definition or normative support in the first place. The defense challenge is especially problematic where, as here, a court improperly puts the burden on the defendant to disprove that consumers experienced initial interest confusion. Exactly what proof would satisfy the court here? I can’t answer this and I bet the court couldn’t either, and I can go further and assert that evidence to disprove initial interest confusion simply does not exist at all.

This court also unfortunately buys into the tired and outdated syllogism that every click on Aroa’s ad was a “diverted” consumer. As I’ve explained here, this massively overstates the quantum of “diversion” (whatever that means) because we don’t know what consumers expected to find when they entered the search term “smart money clip.” The low general risk of diversion is even lower here because consumers saw Aroa’s trademarks in the ad copy, further reducing the risk that anyone was confused by the time they decided to click on the ad.